|
Members Only | Sitemap | Search | Contact Us | Home |
||
 |
||
   |
1615 M Street, NW, Suite 900, Washington, DC 20036 202/822-0950 FAX: 202/822-0955 |
|
 |
|
|
Industry ReportsFebruary 2005New Study of the Midwest Shows Potential for Energy Efficiency to Help Address the Natural Gas CrisisMartin Kushler and Patti Witte A new study released by the American Council for an Energy-Efficient Economy (ACEEE) shows that, over the next five years, a modestly aggressive energy efficiency policy achieving a five percent reduction in electric and natural gas customer use could save Midwestern1 states tens of billions of dollars in net cost savings to customers. Moreover, such an effort would be estimated to produce over 30,000 net new jobs and $750 million in net additional employee compensation over that time period. Because of their direct work with energy efficiency programs and technologies, ESCOs are in a position to assist this effort by continuing to support policies that promote energy efficiency and by continuing to offer the best services that will reduce consumer consumption. The Midwest as a region bears a very heavy cost burden for natural gas, both because of its large total use of that fuel, and because of its extreme dependence (92 percent) on natural gas imported from other states and countries. This burden is approaching a crisis level with the soaring prices that have been observed in the natural gas market during the past two years. ACEEE’s report, entitled Examining the Potential for Energy Efficiency to Help Address the Natural Gas Crisis in the Midwest was written in response to the recent dramatic increases in natural gas prices. Two energy policy trends have helped contribute to the current natural gas crisis. First, the stable wholesale natural gas prices from the late 1980s through the early 2000s led many states and utilities to scale back or abandon their natural gas energy efficiency programs. The second major factor has been the effect of a massive shift toward natural gas as the fuel of choice for electricity generation. Of the 200,000 Megawatts of new power plant capacity added in North America over the past five years, over 90 percent has been fueled by natural gas.2 The Midwest became the focus of this study because of the region’s vulnerability to natural gas price increases. The Midwest has a large concentration of heavy industries that are reliant on natural gas, both for fuel and feedstock purposes. Moreover, the Midwest has a very high saturation of natural gas fueled space heating, and a high heating load due to its harsh winters. Average residential natural gas bills in the Midwest, for example, are almost four times the national average. In 2002, customers in the Midwest were spending over $26 billion on natural gas utility bills. Since then, wholesale natural gas prices have doubled and natural gas utility bills in the region are projected to reach nearly $40 billion by 2006. In addition, virtually all of the Midwest’s natural gas is imported. Over 90 percent of the region’s natural gas is purchased from other states and countries. This represents a huge drain on the area’s economy. Using data from a 2003 national ACEEE study, ACEEE developed “base case” natural gas and electricity consumption levels for residential, commercial and industrial consumers in each Midwestern state for several benchmark time periods(2006, 2010, 2015, 2020). These consumption levels represented the amount of natural gas and electricity that would be consumed under “business as usual” conditions. ACEEE then developed estimates of reasonable potential percentage savings of natural gas and electricity, for each customer sector in each state for each time period. These percentage savings were based on the implementation of a modestly aggressive (but still pragmatically achievable) energy efficiency effort that would achieve on the order of a five percent reduction in both electricity and natural gas customer use over five years. By multiplying the base case natural gas and electricity consumption by the percentage savings estimates, ACEEE estimated total projected natural gas and electricity savings levels over time. Dollar savings were then calculated by multiplying the consumption savings estimates by projected retail rates. In addition to the direct savings on natural gas and electricity bills from energy efficiency reductions in consumption, ACEEE also looked at savings in natural gas bills across all customers due to reductions in the wholesale market price of gas3 and savings to electricity customers due to the reduced cost of natural gas for electricity generation. Figure 1 presents a graph illustrating the growth in cumulative dollar savings disaggregated into each of the estimated four components.
As can be seen in Figure 1, the cumulative dollar savings from an aggressive but achievable energy efficiency policy initiative would be quite substantial. After just five years, cumulative savings to customers in the region would total over $16 billion, and after 15 years, cumulative savings would be approaching$100 billion. The single largest component (over 40percent) would be due to the direct savings from electric energy efficiency.4 Roughly another 20 to 25percent each would result from direct natural gas energy efficiency improvements and reductions in the market price of natural gas. The remaining 10 percent would result from the reduction in the cost of natural gas used in electricity generation. The study estimated that costs to achieve these savings would be about one-third to one-half of the dollar value of the lifetime energy savings. Generally the programs might require average program investments across the eight states in the region of perhaps $40 million per year per state for natural gas energy efficiency programs and $100 million per year per state for electric energy efficiency programs. A copy of the report and appendices can be obtained at
http://www.aceee.org/pubs/u051.htm. 1For the purposes of this study, we
define the Midwest region as containing eight states: Illinois,
Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio and Wisconsin. |
|
Members Only | Sitemap | Search | Contact Us | Home |
©2008 NAESCO, Inc. |